Australia's business conditions slump 7 points in May

Business conditions in Australia posted a sharp fall of seven points to eight points in May driven by declines in trade, employment, and profitability, according to a survey released by the National Australia Bank Ltd. (NAB) Tuesday.

The fall in conditions appears to be accelerating but still remains above the long-run average, said the survey.

All the three sub-components of the business conditions fell in May, of which trading dropped eight points to 14 points, employment down seven points to four points and profitability slid five points to seven points, it said.

Conditions in all the industries saw declines with the biggest pullback seen in transport and utilities, wholesales, and mining industries. The retail industry remained solid despite a small setback seen in May.

The business confidence across industries weakened in May with the index declining four points to minus four points. The weakest confidence was seen in the retail industry while mining, manufacturing and transport, and utilities saw modest improvements. Forward orders declined six points to minus five points.

"Confidence fell back into negative territory though has bounced around within the zero to minus four index point range in recent month," said Alan Oster, chief economist of NAB. "Our bigger worry is the sharp decline in forward orders in the month."

The forward orders measure typically leads business conditions and historically has been the best measure of economic activity, said Oster. "If orders persist at these levels we could well see ongoing sharp falls in business conditions, highlighting the risks around economic growth through the middle of this year," he noted.